Tag: taxes

No matter the topic, Donald Trump has proven again and again both that he’s not very articulate and that his knowledge of the U.S. Constitution, the legislative process in general and the congressional budget process in particular is limited.

That’s why it hasn’t been surprising that those who are closely following the federal budget and the midterm election almost immediately dismissed Trump’s talk of a ten percent tax cut for middle-income Americans in the next two weeks as a desperate campaign stunt rather than a serious proposal. After all, Congress won’t even be in session.

That’s probably still the most likely analysis of the situation, especially because there have been ample reports that the Republican congressional leadership, including the chair of the House’s tax-writing committee, was caught unawares by Trump’s statement and disavowed all knowledge of the plan.

But what if, rather than making an off-the-wall campaign promise that he has no plan to pursue when the election is over, Trump was actually inarticulately stating what he wants to do and how he plans to do it?

The clue might be Trump’s use of the word “resolution” when explaining how he was going to proceed.

As reported by CNBC, Trump told White House reporters yesterday,”We’re putting in a resolution some time in the next week and a half to two weeks [and] we’re giving a middle-income tax reduction of about 10 percent.” (emphasis added)

Trump’s use of the word “resolution” might be due to his lack of understanding of how Congress works. But it’s curious that he didn’t use a simpler and more common word like “bill,” legislation,” or “proposal” to describe what he was going to put in.

This is particularly interest because “resolution” has a special meaning in the congressional budget process. Using a “budget resolution” as the first step on the path to the tax cut would make it much much easier to enact.

As I explained in this post yesterday, Congress adopting a budget resolution could prevent the new Trump tax plan from being filibustered in the Senate because that would enable it to be considered with reconciliation, the same procedure used to pass last year’s tax bill.

That’s not to say that going the budget resolution route would be easy or politically painless, but it could work. Here’s how I described it in my post yesterday;

“The process could be expedited if the House passed the budget resolution already adopted by its budget committee, if the Senate then agreed to what the House passed with an amendment requiring reconciliation, if the House then passed the budget resolution with the Senate amendment, if the House Ways and Means Committee quickly adopted the Trump plan, if the full House quickly passed what the committee approved and if the full Senate bypassed its Finance Committee and adopted the House-passed bill without making any changes.”

It’s not at all hard to imagine Trump being briefed by his staff on this very complicated procedure and that he then garbled what he was told when he described his tax plan to reporters.

Then again, it’s also very possible that there really is no tax plan of any kind.

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President Trump made headlines late last week with another of his shoot-from-the-hip policy pronouncements, this time that there would be a tax cut before the midterm elections. According to The Washington Post, Trump said the cuts would get done “sometime just prior, I would say, to November.”

I’m going to give Trump the benefit of the doubt and assume that he meant that only the specifics of his new tax proposal would be announced rather than that the plan would be enacted prior to November. With Congress out of session and the GOP leadership almost certainly against calling its members back to Washington during the final days of the election, it’s hard to imagine that he meant anything but that there would be an announcement.

(I shudder to think about the possibility that Trump either thought this actually could get done legislatively over the next two weeks or that he could ignore the U.S. Constitution and simply impose the changes he wants without congressional action.)

But even assuming that what Trump meant was just an announcement, it’s hard to see how what he might propose (For the record, I’m not at all convinced he will actually propose anything) can get done in the lame duck. Here’s why.

1. The Trump tax plan can be filibustered in the Senate.

2. Unless Majority Leader Mitch McConnell (R-KY) is willing to do away with the legislative filibuster, which he so far has been completely unwilling to do, the only way to avoid a filibuster of the Trump tax bill will be to do it as a reconciliation bill.

3. But reconciliation may only be done if both houses of Congress adopt a budget resolution conference report with reconciliation instructions ordering it…and neither the House nor Senate have passed a budget resolution yet this year. The House Budget Committee has approved one but there has been no activity in the Senate.

4. Therefore, before a new Trump tax plan could be considered, a budget resolution with its projected trillion-dollar deficits would have to be adopted. That will be much easier to do after than before the election, but still won’t be a simple vote for some GOP members even if it would make a tax cut easier..

5. And it will take time. Even with a truncated process, adopting a budget resolution is likely to take at least two weeks…and probably closer to three or four.

6. Meanwhile, votes become less reliable the longer a lame duck continues as retiring and defeated representatives and senators become less interested in their current job and more concerned about what’s next. If the past is any guide, some will even stop coming to Washington entirely.

7. This is not to say that enacting another tax bill will be impossible, just that it will be very difficult. The process could be expedited if the House passed the budget resolution already adopted by its budget committee, if the Senate then agreed to what the House passed with an amendment requiring reconciliation, if the House then passed the budget resolution with the Senate amendment, if the House Ways and Means Committee quickly adopted the Trump plan, if the full House quickly passed what the committee approved and if the full Senate bypassed its Finance Committee and adopted the House-passed bill without making any changes.

8. That’s six ifs. Add in the typical no shows during a lame duck and you get a recipe for no action.

That will put the new Trump tax plan on the same legislative trash heap as his wall, his space force, his infrastructure proposal and his military parade.

In its just-released monthly budget review, the Congressional Budget Office estimated that the federal deficit for fiscal 2018, which ended a week ago on September 30, was $782 billion, a $116 billion increase over the $666 billion deficit recorded in 2017. CBO said that revenues grew by just $13 billion and so were essentially flat compared to what the government collected in 2017. Spending grew by $129 billion, a 3.2 percent increase over 2017.

It would be easy — but very very wrong — to conclude that the increased spending was the reason the budget deficit rose from 2017 to 2018. After all, revenues were about the same both years while spending was higher.

But this overly simple explanation only works if you compare revenues and outlays to what was actually collected and spent the previous year. The explanation is the exact opposite when the substantively correct comparison — to what was expected in 2018 if all tax and spending laws had remained the same — is used.

In June 2017, CBO issued its updated “Budget and Economic Outlook: 2017-2027″ report that showed federal revenues rising in 2018 under current law to $3.5 trillion (Take a look at Table 13). That means the tax bill reduced revenues this past year by about $200 billion compared to what they would have been had it not been enacted.

In that same report, outlays in 2018 were projected to be $16 billion less under current law than the amount CBO now says was actually spent last year.

In other words, the real reason the budget deficit grew from 2017 to 2018 was because revenues were substantially less than what they would have been without the tax bill. Had it not been enacted, the deficit would have dropped below $600 billion instead of rising to close to $800 billion

This is not the spin anti-federal spending activists will use. Indeed, as I’ve posted about previously, even before the tax bill and its projected $1.5 trillion revenue loss was adopted, so-called conservative interest groups such as the Heritage Foundation were pushing the narrative that higher spending was the only reason for the deficit and revenues had nothing to do with it.

The two CBO reports cited above decisively show that’s just not true.

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When House Republicans passed their tax 2.0 last week and then recessed until the lame duck session that begins this November, the presumption was that this latest GOP descent into bigger budget deficits was nothing more than a pre-election ploy that would never go any further.

And with Majority Leader Mitch McConnell (R-KY) saying that the Senate had no plans to take up whatever the House passed before the election, that seemed like a safe bet.

But contrary to what’s currently being assumed, 2.0 could definitely become law this year.

It all has to do with the filibuster.

The House-passed tax bill may be filibustered in the Senate and there’s no way that enough Democrats will join Republicans to provide the needed 60-vote margin to stop the debate and get to a vote. This will be especially true in a lame duck when it’s two years before the next election and fear of voter retribution is at its absolute lowest point.

This can’t-stop-a-filibuster problem is the GOP’s own doing. While the reconciliation procedures of the congressional budget process would have prevented a filibuster, reconciliation only happens pursuant to instructions included in a budget resolution and McConnell and Speaker Paul Ryan (R-WI) decided early this year that there wouldn’t be one. That decision prevented reconciliation from being used and has stopped 2.0 from being enacted.

McConnell and Ryan were making a purely political calculation. They wanted to protect the GOP representatives and senators running for reelection from having to vote in favor of a budget resolution that projected trillion-dollar deficits.

But the need to protect these House and Senate members won’t exist after Election Day. That will make a budget resolution and reconciliation acceptable and, therefore, tax 2.0 doable.

It won’t be easy, but it’s certainly not impossible.

First, the House and Senate would quickly have to adopt a fiscal 2019 budget resolution with reconciliation instructions that require the 2.0 tax changes.

Second, the House-passed 2.0 would have to be designated as the legislation required by the just-adopted budget resolution’s reconciliation instructions or the House would need to re-pass 2.0.

Third, with a simple majority, the Senate could either pass its own 2.0 or…and much more likely…pass the House-adopted bill.

Fourth, the 2.0 bill now adopted by the House and Senate would then go to the president for his signature and enactment.

Don’t dismiss this out-of-hand.

The GOP has already shown its willingness to use the budget process very creatively when it passed two budget resolutions in 2017 so reconciliation could be used twice — once to try to repeal the Affordable Care Act and once for tax 1.0. This would just be a variation on that theme.

In addition, the Republican political considerations will all change significantly after the election, especially if they lose control of one or both houses. In particular, the GOP may want to increase the budget deficit as much as possible to limit what the Democrats are able to do legislatively when they’re in charge in the next Congress.

Finally, if it’s not enacted during this lame duck, the GOP’s ability to reward its supporters and donors with the tax changes provided in 2.0 may be gone for two years or longer. Republicans may want to go for it while they are still able to do so.